Capital One 2005 Annual Report Download - page 2

2005 was a transformational year for Capital One. Two years ago, we announced our intention to buy a bank. In
November of 2005, we made banking a reality at Capital One with the acquisition of Hibernia. Our diversification
strategy continued to drive strong results. We delivered our 11th straight year of record earnings with diluted earnings
per share of $6.73. Asset growth was strong, with managed loans increasing 32% to $106 billion in 2005, including
Hibernia. Our balance sheet remained solid and diversified with $47.9 billion of total deposits, exceptional liquidity,
and more than half of our managed loans now in businesses beyond U.S. credit cards. We also continued to see stellar
credit performance with managed charge-offs of 4.25%.
We’re Delivering On Our Strategy
At Capital One, we believe that the essence of strategy is figuring out where the world is going and then working backwards
from that vision to position our company to win. Here’s where we believe the world of consumer banking is going.
Consumer lending businesses, like credit cards and home equity, used to be dominated by the local branch on the
corner. However, the ability to win in these markets is increasingly dependent on having national marketing capabilities,
a national customer base, a national brand, and the efficiencies that go along with national scale. Consumer lending
businesses are consolidating nationally at a rapid pace. A handful of big players ultimately will emerge as winners as
these businesses continue to consolidate one product at a time.
Certain banking businesses, like deposits and parts of small business, remain steadfastly local in nature. Success in these
businesses is not driven by national scale. Instead, banks with a sizeable share in their local markets tend to disproportionately
win in those businesses.
We believe that the winners in consumer banking will be the nationally branded players who bring together the best
of national scale lending and local scale banking. However, while banks are focused on consolidation, few are directly
pursuing our vision of the end game. Monolines specializing in a single lending product generally are focused on building
bigger and bigger versions of themselves, but they’re not diversifying. Regional banks typically are focused on expanding
geographically, but they’re not building national scale lending platforms in the process. The largest national banks have
both national and local scale, but often tend to take a national approach to competing in their local businesses. Only
a handful of banks are building a national brand.
We’ve been focused on the inevitable transformation of consumer banking since we began building our credit card
business in 1988. We chose to enter the credit card business because we believed that it was at the forefront of this
transformation. We thought that, using the power of information, technology and testing, we could build a winning
national scale business as the credit card business consolidated.
We believed that we could export the capabilities that we built in credit cards to other consumer lending businesses
as they eventually followed a similar path. Our vision was to acquire or build growth platforms in key consumer lending
businesses to capitalize on future waves of consolidation. Seven years ago, we started down the diversification path in
the United States with our move into auto finance. We’ve also created national scale growth platforms in small business
lending, home equity, installment lending and other emerging lending businesses, as well as diversifying internationally
in the United Kingdom and Canada.
CHAIRMAN’S LETTER TO SHAREHOLDERS AND FRIENDS
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We’re delivering on our strategy
of combining the power of
national scale lending and local
scale banking.
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